Centerra Gold's Earnings and Cash Flow Rise Sharply.TORONTO Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing -- Third Quarter 2004 (All figures are in United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. dollars unless otherwise specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. ) Centerra Gold Centerra Gold Inc. (TSX: CG) is the gold mining company headquartered in Toronto, Canada. The company was formed and went public in 2004 when Saskatoon, SK-based Cameco Corp. Inc. (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CG) today reported earnings of $28.7 million or $0.40 per share for the three months ended September September: see month. 30, 2004. Cash from operations amounted to $29.2 million. In the comparable quarter of 2003, earnings and cash flow were $2.8 million or $0.07 per share and $15.4 million respectively. For the first nine months of 2004, earnings were $40.5 million or $0.81 per share and cash from operations totaled $63.5 million. These compare to earnings of $2.3 million or $0.06 per share and cash from operations of $25.3 million in the same period of 2003. Third Quarter Highlights - Increased ownership, production and realized prices drove significant increases in revenue, earnings and cash from operations - Operations at both Kumtor and Boroo mines exceeded expectations - Hedge hedge, ornamental or protective barrier composed of shrubs or small trees growing in close rows. The plants may be allowed to grow naturally or may be trimmed to various heights and shapes (see topiary work). book was completely eliminated during the quarter - Cash totaled $130.9 million at September 30; no long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. - Exploration programs for 2004 were expanded based on encouraging results: - At Kumtor, drill program increased by $2.1 million - At Gatsuurt, drill program increased by $2.0 million, and - At REN ren or jen In Confucianism, the most basic of all virtues, variously translated as “humaneness” or “benevolence.” It originally denoted the kindness of rulers to subjects. , $2.5 million Phase 2 program approved and launched - Surpassed significant safety milestones at the Kumtor and Boroo mines - Mr. Ularbek Mateyev, President of Kyrgyzaltyn JSC JSC Johnson Space Center (NASA) JSC Joint Stock Company JSC Java Studio Creator JSC Joint Steering Committee JSC Joint Standing Committee JSC Journal of Symbolic Computation JSC Joint Scientific Committee , was appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. to the Board of Directors "We are very pleased with the strong results of the quarter," said Len Homeniuk, President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "Operations at both mines continue to exceed expectations and our exploration program is yielding encouraging results. As well, we had another solid safety performance, surpassing significant milestones at both mines without lost-time accidents." "We welcome Mr. Ularbek Mateyev, Kyrgyzaltyn's nominee nominee n. 1) a person or entity who is requested or named to act for another, such as an agent or trustee. 2) a potential successor to another's rights under a contract. to the board of Centerra, and we look forward to working with him as the Company pursues its growth strategy focused on Central Asia, the former Soviet Union and other emerging markets," concluded Mr. Homeniuk. Summary of the quarter Centerra Gold became a public company on June June: see month. 30, 2004. Its predecessor predecessor - parent company, Cameco Cameco Corp. TSX: CCO NYSE: CCJ is the world's largest publicly traded uranium company, based in Saskatoon, Saskatchewan. It was formed in 1988 by the merger and privatization of two crown corporations: the federal owned Eldorado Mining and Refining Limited (known better Gold Inc. was a division of Cameco Corporation which held a one-third interest in Kumtor and a 53% interest in Boroo. Since June 30, 2004, Centerra's main operating and exploration ownership interests consist of a 100% interest in Kumtor mine, a 95% interest in Boroo mine, and in exploration properties, a 62% interest in REN and a 100% interest in Gatsuurt. For accounting purposes, Centerra's consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: third quarter results reflect fully consolidated interests in the Kumtor and Boroo mines, a 62% interest in REN and a fully consolidated interest in Gatsuurt. Net earnings for the third quarter of 2004 were $28.7 million or $0.40 per share compared to $2.8 million or $0.07 per share for the same period in 2003. The year-over-year improvement is primarily due to the increased ownership of the Kumtor mine, the start of commercial operations at the Boroo mine on March 1, 2004 and higher realized prices due to a reduced hedge position. During the quarter, Centerra's share of production at the Kumtor and Boroo mines rose to 235,579 ounces from 69,043 ounces in the same prior year period. Total cash cost per ounce ounce, in zoology ounce, in zoology: see leopard. ounce, unit of measurement ounce: see English units of measurement. of gold was $178 compared to $160 in the third quarter of 2003. For the three months ended September 30, 2004, Centerra revenues rose to $86.7 million from $20.6 million in the corresponding period of 2003. This was due to the start-up Start-up The earliest stage of a new business venture. of operations at the Boroo mine, which was under construction during 2003, an increased ownership interest in the Kumtor mine and a 28% increase in average realized prices to $398 per ounce. Gross profit was $31.2 million in the quarter compared to $5.1 million a year ago. For the three months ended September 30, 2004, cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses was $29.2 million, almost double the $15.4 million reported in the same period a year ago. As of the end of September, all forward sales forward sales npl → ventas fpl a término agreements have been closed and all credit support, previously provided by Cameco, has been removed. During the quarter, the Company closed forward contracts for 155,000 ounces, including 125,000 ounces in July July: see month. , which were noted in Centerra's second quarter report. Currently, Centerra does not intend to hedge any of its future production. Exploration Exploration at Kumtor has been accelerated with three additional drill rigs added in mid-October n. 1. the middle part of October. Noun 1. mid-October - the middle part of October period, period of time, time period - an amount of time; "a time period of 30 years"; "hastened the period of time of his recovery"; "Picasso's blue period" bringing the total on site to eight. At Boroo, the Phase 2 drilling program is in progress to further delineate the mineralization Mineralization The process by which the body uses minerals to build bone structure. Mentioned in: Rickets mineralization, n the bioprecipitation of an inorganic substance. . At Gatsuurt, 32 drill holes totaling 3,822 metres were drilled at the Central Zone. Metallurgical met·al·lur·gy n. 1. The science that deals with procedures used in extracting metals from their ores, purifying and alloying metals, and creating useful objects from metals. 2. test work suggests that high recoveries may be achievable for the deeper transition and fresh sulphide sulphide: see sulfide. material using the bio-oxidation technology and further test work has been initiated. Based on the preliminary results to date, management is planning to complete a pre-feasibility study during 2005 on the potential development of the property as a stand-alone (jargon) stand-alone - Capable of operating without other programs, libraries, computers, hardware, networks, etc. Exactly what is absent is presumed to be obvious from context. "We only run Windows on stand-alone PCs because it's too dangerous to run it on networked ones." operation. At the REN project in Nevada Nevada (nəvăd`ə, –vä–), far western state of the United States. It is bordered by Utah (E), Arizona (SE), California (SW, W), and Oregon and Idaho (N). , the $2.5 million Phase 2 program was approved by the joint venture partners and drilling was initiated in August. Based on the encouraging results from the drilling programs, particularly at the Kumtor and Gatsuurt properties, the Company has increased its exploration program for 2004 by almost $4.1 million to roughly $14.5 million. Outlook Fourth quarter 2004 Revenues in the fourth quarter are expected to be lower than the third quarter. Production at Kumtor is expected to decline to about 136,000 ounces in the fourth quarter due to a lower average grade of mill feed. Accordingly, the total cash cost is expected to increase to about $252 per ounce. At Boroo, production is expected to be about 66,000 ounces for the quarter with a total cash cost of about $150 per ounce. For the fourth quarter, a $10 per ounce change in the gold spot price would change revenue by about $2.0 million, net earnings by about $1.8 million and cash from operations by about $1.9 million. Full year 2004 - production - 100% basis For the full year, production is forecast at 900,000 ounces, an increase of 33% over 2003. Considering the Kumtor mine restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , Centerra's share of production for the year is expected to be about 607,000 ounces. Production at Kumtor is expected to amount to 655,000 ounces in 2004 utilizing a milling plan that calls for a mix of lower grade stockpiled ore ore, metal-bearing mineral mass that can be profitably mined. Nearly all rock deposits contain some metallic minerals, but in many cases the concentration of metal is too low to justify mining the ore. and higher grade mine ore. Forecast average grade and total cash cost for 2004 are 4.4 grams per tonne tonne measure of weight or mass; 1 tonne=1000 kg. See also ton. (g/t) and $200 per ounce respectively. Production at Boroo is expected to be 245,000 ounces of gold in 2004 (including 27,703 ounces produced prior to the start of commercial production on March 1, 2004). Forecast average grade and total cash cost for 2004 are 4.60 g/t and $143 per ounce respectively. About Centerra Centerra is a growth-oriented, pure-play gold company focused on acquiring, exploring, developing and operating gold properties primarily in Central Asia, the former Soviet Union and other emerging markets. The two gold mines operated by the Company are forecast to produce 900,000 ounces in 2004 at a total cash cost of about $185 per ounce. This would rank Centerra as the largest Western-based gold producer in Central Asia and the former Soviet Union and the fifth largest North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. based gold producer. Centerra's shares began trading on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. (TSX) on June 30, 2004 under the symbol CG. The Company is based in Toronto, Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Qualified person The technical data under the heading "Exploration" has been prepared under the supervision of and verified ver·i·fy tr.v. ver·i·fied, ver·i·fy·ing, ver·i·fies 1. To prove the truth of by presentation of evidence or testimony; substantiate. 2. by Robert S Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. . Chapman CHAPMAN. One whose business is to buy and sell goods or other things. 2 Bl. Com. 476. , P. Eng P. ENG Professional Engineer P. ENG process engineer ., Vice President of Exploration of Centerra, a "Qualified Person" for the purpose of National Instrument 43-101. Conference call Centerra invites you to join its third quarter conference call on Tuesday Tuesday: see week. , October October: see month. 26, 2004 at 2:00 pm Eastern time. The call is open to all investors and the media. To join the call, please dial (416) 695-5259 or (1-877) 888-3855 (Canada and US). Alternatively, an audio feed will be available on www.centerragold.com. A recorded version of the call will be available on www.centerragold.com shortly after the call, and via telephone until midnight on Tuesday, November November: see month. 9 by calling (416) 695-5275 or (1-888) 509-0081. Additional information on Centerra is available on the Company's web site at www.centerragold.com and at SEDAR SEDAR System for Electronic Document Analysis and Retrieval SEDAR Southeast Data, Assessment, and Review at www.sedar.com. Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial The following discussion of the financial condition and results of operations of Centerra Gold Inc. (Centerra or the Company) for the three months ended September 30, 2004 should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the unaudited consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge and the notes of the Company for the nine months ended September 30, 2004 as well as the prospectus A document, notice, circular, advertisement, letter, or communication in written form or by radio or television that offers any security for sale, or confirms the sale of any security. of the Company dated June 22, 2004 and the financial statements, notes and management's discussion and analysis (Annual MD&A) contained in the prospectus. The financial statements have been prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) and, unless otherwise specified, all figures are in United States dollars. The prospectus, which contains Centerra's Annual MD&A, is available at www.centerragold.com and www.sedar.com. Consolidated third quarter results For accounting purposes, Centerra's consolidated third quarter results reflect fully consolidated interests in the Kumtor and Boroo mines, a 62% interest in the REN and a fully consolidated interest in Gatsuurt.
Highlights - Centerra
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Three Months Ended Nine Months Ended
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Financial Highlights Sept 30/ Sept 30/ Sept 30/ Sept 30/
04 03 04 03
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Revenue - $ millions 86.7 20.6 159.3 52.5
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Gross profit - $ millions 31.2 5.1 57.8 9.4
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Net earnings - $ millions 28.7 2.8 40.5 2.3
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Cash flow from operations
- $ millions 29.2 15.4 63.5 25.3
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Sales volume - ounces (1) 217,593 63,303 414,754 158,398
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Ounces poured (1) 235,579 69,043 435,505 156,625
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Average realized
price - $/oz 398 312 380 315
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Gold spot market price
- $/oz Average for period 401 363 401 354
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Total cash cost - $/oz (2) 178 160 173 200
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Earnings per common share
- $ Basic and fully diluted 0.40 0.07 0.81 0.06
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Weighted average shares
outstanding (thousands) (3) 71,509 38,149 50,072 38,149
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(1) Comprising one-third of Kumtor to June 22, 2004 and 100%
thereafter, and 100% of Boroo.
(2) Total cash cost is a non-GAAP measure and is discussed under
"Non-GAAP measure - Total cash cost".
(3) For most of the first half of 2004, the number of shares
outstanding was 38.1 million. After the IPO, this rose to 72.1
million. As a result, the weighted average number of shares
outstanding for the nine months to September 30, 2004 was
50.1 million.
Gold production and revenue Revenue increased to $86.7 million in the third quarter from $20.6 million in the same quarter last year. In the third quarter, Centerra's production of 235,579 ounces was significantly higher than the 69,043 ounces produced in the third quarter of 2003 due to two factors: - At the end of the second quarter of 2004, Centerra increased its ownership of the Kumtor mine from 33.3% to 100% and now reports the full production volume; and - Commercial production at the Boroo mine began on March 1, 2004. Centerra realized an average gold price of $398 per oz for the third quarter, a significant increase over the $312 per ounce realized in the same quarter in 2003. This increase was due to higher spot gold prices that averaged $401 per ounce in the third quarter of 2004, compared to $363 per ounce in the prior year quarter, and a reduction in the Company's hedge position. Centerra did not realize the entire benefit of the increase in spot gold prices as it delivered a portion of its gold production during the quarter into gold hedge contracts at below spot market prices. The Company closed its remaining hedge positions at Boroo. As of September 30, 2004, Centerra's gold production is completely unhedged. The impact of this and prior closures of Centerra's hedge position is discussed below under "Gold hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. and off-balance sheet obligations". Cost of sales Cost of sales increased to $37.4 million in the third quarter of 2004 from $11.4 million in the same period of 2003 due to an increased ownership in Kumtor and the start of commercial production at Boroo. On a unit basis, the total cash cost per ounce for 2004 was $178, up from $160 in 2003, due to lower gold production at Kumtor reflecting lower grade ore fed to the mill. Depreciation, depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and reclamation Reclamation A claim for the right to return or the right to demand the return of a security that has been previously accepted as a result of bad delivery or other irregularities in the delivery and settlement process. Depreciation, depletion and reclamation increased to $18.0 million in the third quarter of 2004 from $4.1 million in the prior year quarter due to an increased ownership in Kumtor and the start of commercial production at Boroo. On a per unit basis, depreciation and amortization increased in 2004 to $83 per ounce from $65 per ounce in 2003 primarily due to the higher rate of depreciation and amortization at Boroo and the amortization of purchase price adjustments related to the acquisitions that took place in the second quarter of 2004. Exploration Exploration and development costs increased to $3.8 million in the third quarter of 2004 from $1.5 million in the prior year period. Interest and other Interest and other expense reflected a net recovery of $5.1 million in the third quarter of 2004 compared to net expense of $0.6 million in the same period in 2003 primarily due to a $5 million foreign exchange gain on Centerra's Canadian cash balance which appreciated in value as the Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents strengthened compared to the US dollar. The Company had no outstanding interest-bearing Adj. 1. interest-bearing - of financial obligations on which interest is paid debt during the third quarter. Administration Administration costs for the third quarter of 2004 were $3.5 million compared to $0.7 million in the same quarter last year. This increase resulted from expenses related to the start-up of Centerra, its development as a stand-alone entity and the reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of insurance costs. Net earnings Net earnings for the third quarter of 2004 were $28.7 million or $0.40 per share compared to $2.8 million or $0.07 per share for the same period in 2003. This improvement is primarily due to an increased share of production at Kumtor, the start-up of Boroo and higher realized prices. Liquidity and capital resources Cash flow from operations was $29.2 million for the third quarter of 2004 compared to $15.4 million for the prior year period. The increase resulted from higher realized gold prices, the increased ownership at Kumtor and the start of commercial production at Boroo. Cash used in investing activities in the third quarter of 2004 was $3.6 million, down from $16.2 million in the same period a year ago when construction of the Boroo mine was underway. Financing activities contributed cash flow of $20.0 million in the third quarter of 2004 compared to a use of funds of $4.2 million in the same period in 2003. The 2004 amount was due to the issuance of 1,875,000 common shares upon the full exercise of the over-allotment option by the underwriters of Centerra's initial public offering. Cash on hand was $130.9 million on September 30, 2004 of which $60 million is held in Canadian funds. Centerra has sufficient cash to carry out its business plan in 2004, including its growth strategy. This cash comes from the initial public offering of Centerra shares, the exercise of the over-allotment option by the underwriters, operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. , and existing cash reserves Cash reserves See: Cash investments cash reserves Investment funds that are held in short-term assets such as Treasury bills and certificates of deposit until more permanent investment opportunities are available. . Balance sheet Property, plant and equipment The aggregate book value of property, plant and equipment at September 30, 2004 of $273.3 million is allocated by site as follows: Kumtor $161 million and Boroo $112 million. Share capital In the third quarter of 2004, the Company issued 1,875,000 common shares as noted above in relation to the exercise of the over-allotment option. In exchange, the Company received net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of $20.3 million (Cdn$27.6 million). As of September 30, 2004, Centerra had 72,079,605 shares outstanding. At September 30, 2004, Centerra had 104,167 share options outstanding under its stock based incentive plans. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. results The year-to-date results to September 30, 2004 reflect an increased ownership in Kumtor, higher production at Kumtor, the start of commercial production at Boroo and higher realized prices due to a reduced hedge position. This has resulted in higher revenue and earnings compared to the period ended September 30, 2003. Revenue for the nine months ended September 30, 2004 increased to $159.3 million from $52.5 million in the same period in 2003. As a result of these significantly higher revenues, net earnings were $40.5 million or $0.81 per share in the first nine months of 2004 compared to $2.3 million or $0.06 per share in the comparable 2003 period. Gross profit was $57.8 million in the 2004 period versus $9.4 million in 2003. Cash flow from operations for the nine months ended September 30, 2004 was $63.5 million compared to $25.3 million for the year earlier period. Contractual obligations There have been no significant changes from the contractual obligations identified in the Annual MD&A included in the prospectus except as disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). in Centerra's 2004 second quarter report and, in addition, the Phase 2 program at the REN project was approved by the joint venture partners. Centerra's share of the $2.5 million program is $1.6 million. Gold hedging and off-balance sheet obligations As of September 30, all forward sales agreements have been closed and all credit support, previously provided by Cameco, has been removed. Centerra currently intends that its gold production will remain unhedged. The deferred charges, net of deferred revenue, related to the closing of the hedges, will be recognized in future periods. At September 30, 2004, they totaled $8.0 million and are expected to be amortized as follows: Recognition of Deferred Charges (net of deferred revenue) -------------------------------------------------------------- $ millions Q1 Q2 Q3 Q4 Total -------------------------------------------------------------- 2004 -- -- -- (0.2) (0.2) -------------------------------------------------------------- 2005 2.2 1.0 1.1 1.1 5.4 -------------------------------------------------------------- 2006 1.9 (0.6) 0.4 0.6 2.3 -------------------------------------------------------------- 2007 0.5 -- -- -- 0.5 -------------------------------------------------------------- Total 8.0 -------------------------------------------------------------- Market Update The average spot market gold price during the third quarter was $401 per ounce and $416 at the end of the period. This compares to $396 at June 30, 2004 and $354 at the end of the third quarter of 2003. For the first half of October, 2004, spot gold prices traded in the range of $411 to $422 per ounce. Mine Operations Operating and financial results of the Kumtor and Boroo mines are shown on a 100% basis. With the completion of the Kumtor restructuring and the acquisition of the AGR AGR advanced gas-cooled reactor minority in the second quarter of 2004, Centerra owns 100% of Kumtor and 95% of Boroo. Kumtor - 100% basis The Kumtor open pit mine, located in the Kyrgyz Kyr·gyz or Kir·ghiz or Kir·giz n. pl. Kyrgyz or Kyr·gyz·es or Kirghiz or Kir·ghiz·es or Kirgiz or Kir·giz·es 1. Republic, is the largest gold mine in Central Asia operated by a Western-based producer. It has been operating since 1997. Kumtor has not had a lost time accident (LTI LTI Linear Time Invariant LTI Long Term Incentive (NZ) LTI Lingua Tertii Imperii (language of the NAZI empire, Latin) LTI Lost Time Injury LTI Leadership Training Institute LTI Lost Time Incident ) in 2004 and has now accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. 2.9 million man-hours without an LTI.
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Three Months Ended Nine Months Ended
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Kumtor Operating Results Sept 30/ Sept 30/ Sept 30/ Sept 30/
04 03 04 03
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Sales volume - ounces 148,706 189,909 496,142 475,193
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Revenue - $ millions 58.5 59.2 183.6 149.6
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Tonnes mined - 000s 21,111 21,108 63,237 56,685
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Tonnes ore mined - 000s 829 1,334 1,974 3,432
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Tonnes milled - 000s 1,446 1,466 4,271 4,267
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Average grade - g/t (1) 4.27 5.20 4.55 4.17
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Recovery - % 83.0% 83.4% 82.6% 82.6%
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Ounces recovered 164,609 204,535 515,641 472,394
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Ounces poured 166,805 207,128 518,627 469,875
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Total cash costs - $/oz (2) 192 160 185 200
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Capital expenditures -
$ millions 1.0 3.4 3.8 10.5
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(1) g/t means grams per tonne.
(2) Total cash cost is a non-GAAP measure and is discussed under
"Non-GAAP measure - Total cash cost".
Revenue In the third quarter of 2004, revenue declined to $58.5 million as lower production was only partly offset by an increase in the average realized price to $394 per ounce. Production was 166,805 poured ounces, 19% lower than the prior year quarter due primarily to lower ore grade Ore grade is a measure that describes the concentration of a valuable natural material (such as metals or minerals) in its surrounding ore. Ore grade is used to assess the economic feasibility of a mining operation: the cost of extracting a natural material from its ore is directly averaging 4.27 g/t compared to 5.20 g/t in 2003. The higher average realized price was due to higher gold spot prices and the elimination of hedges in the second quarter. Cost of sales In the third quarter of 2004, the cost of sales was $28.4 million, a decrease of $5.8 million over the same period in 2003. Total cash costs per ounce increased to $192 in the third quarter of 2004 from $160 for the same quarter in 2003, a direct result of a lower average grade fed to the mill. Exploration In the third quarter of 2004, exploration expenditures were $1.8 million. The expenditures relate primarily to ongoing drilling in the immediate vicinity of the open pit and in the Southwest Southwest or south west is the ordinal direction halfway between south and west, the opposite of northeast. Southwest or south west may also refer to:
Boroo - 100% basis The Boroo open pit gold mine began the commissioning phase in November 2003 and was brought into commercial production on March 1, 2004. In the third quarter of 2004, Boroo surpassed 750,000 hours of work without an LTI.
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Three Months Nine Months
Ended Ended
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Boroo Operating Results Sept 30/04 Sept 30/04
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Sales volume - ounces(1) 68,887 150,236
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Revenue - $ millions 28.2 57.4
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Tonnes mined - 000s 3,292 8,139
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Tonnes ore mined - 000s 454 1,108
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Tonnes milled - 000s 471 1,098
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Average grade (g/t) 5.25 4.57
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Recovery - % 93.0% 93.2%
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Ounces recovered(1) 74,009 150,510
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Ounces poured(1) 68,774 151,426
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Total cash cost - $/oz(2) 135 135
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Capital expenditures - $ millions 2.7 5.5
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(1) Does not include pre-commissioning production or sales volumes
for January and February 2004 of 27,703 ounces.
(2) Total cash cost is a non-GAAP measure and is discussed under
"Non-GAAP measure - Total cash cost".
Revenue In the third quarter of 2004, sales of 68,887 ounces of gold and an average realized gold price of $409 per ounce generated revenue of $28.2 million. Sales for the first nine months of 2004 were 150,236 ounces, with an average realized gold price of $382 per ounce generating revenue of $57.4 million. Production in the third quarter at Boroo was 68,774 poured ounces and to September 30, 2004 was 151,426 ounces, higher than expected due to grades greater than anticipated in the ore reserve model. Cost of sales In the third quarter of 2004, cost of sales was $9.0 million. Total cash costs were $135 per ounce in the third quarter as well as for the first nine months of the year. Exploration In the third quarter of 2004, exploration expenditures were $0.5 million to drill test targets in the immediate mine area and $0.7 million on exploration licenses held in Mongolia Mongolia, country, Asia Mongolia (mŏn-gō`lēə, mŏng–), officially State of Mongolia, republic (2005 est. pop. 2,791,000), 604,247 sq mi (1,565,000 sq km), N central Asia; traditionally known as Outer Mongolia. . See also "Exploration program update". Exploration program update In the Kyrgyz Republic, work continued on Centerra's exploration program as follows: - At the Kumtor mine site, 15 drill holes, for a total of 6,244 metres, tested for extensions to mineralization in the immediate vicinity of the open pit at the northend Northend is the name of several places in England:
- In the Southwest Zone (encompassing the former Southwest Extension), 30 drill holes were completed for a total of 5,481 metres. Most holes were drilled to in-fill between existing holes and upgrade the drilling density. In general, they have confirmed the continuity of the known mineralization. - Based on the above results, the exploration programs at Kumtor were accelerated and three additional drill rigs were added in mid-October bringing the total to eight on site. The exploration program has been increased by $2.1 million for a total of $6.5 million for 2004. Updated reserve and resource estimates as of December December: see month. 31, 2004 are expected during the first quarter of 2005. In Mongolia, work continued on Centerra's exploration program as follows: - At the Boroo mine site, a phase 2 drill program is in progress to further delineate the mineralization in the northern end of Pit 6, between Pits 3 and 5, and along the northern and western edges of Pit 3. During the quarter, 18 holes totaling 2,417 metres have been completed. An updated reserve and resource estimate as of December 31, 2004 is expected during the first quarter of 2005. - Assay ASSAY. A chemical examination of metals, by which the quantity of valuable or precious metal contained in any mineral or metallic mixture is ascertained. 2. By the acts of Congress of March 3, 1823, 3 Story's L. U. S. 1924; of June 25, 1834, 4 Shars. cont. Story's L. U. S. results from exploration drill programs completed during the third quarter in the general Boroo district and at the Ulaan Ulaan (Mongolian: Улаан, red) is part of many names, signifying: Places Mongolia
v. min·er·al·ized, min·er·al·iz·ing, min·er·al·iz·es v.tr. 1. To convert to a mineral substance; petrify. 2. To transform a metal into a mineral by oxidation. 3. areas. - At Gatsuurt, 26 drill holes totaling 1,298 metres tested the shallow This article or section may contain original research or unverified claims. Please help Wikipedia by adding references. See the for details. This article has been tagged since October 2007. Shallow means not very deep. oxide oxide, chemical compound containing oxygen and one other chemical element. Oxides are widely and abundantly distributed in nature. Water is the oxide of hydrogen. Silicon dioxide is the major component of sand and quartz. resource at the Central Zone. In general, the drill holes confirmed the continuity of the mineralization identified by pre-existing Adj. 1. pre-existing - existing previously or before something; "variations on pre-existent musical themes" pre-existent, preexistent, preexisting antecedent - preceding in time or order holes. Four of an additional six wide-spaced drill holes, which tested the mineralization to depths of 150 to 200 metres, confirmed the mineralization extends to depth. Metallurgical test work suggests that high recoveries may be achievable for the deeper transition and fresh sulphide material using bio-oxidation technology and further test work has been initiated. Based on the preliminary results to date, management is planning to complete a pre-feasibility study during 2005 on the potential development of the property as a stand-alone operation. If Gatsuurt proceeds as a stand-alone operation, the need to truck oxide ore to Boroo would be eliminated. - Based on the above results, an accelerated drill program has been approved to systematically delineate the Gatsuurt Central Zone mineralization to depths of 170 metres below surface. The program was initiated in early October and will utilize three drills to complete 17,500 metres of drilling. The exploration program has been increased by $2.0 million for a total of $3.5 million in 2004. A new resource estimate as of December 31, 2004 is expected during the first quarter of 2005. At REN in Nevada, the $2.5 million Phase 2 program was approved by the joint venture partners and drilling was initiated in August. During the quarter, five reverse circulation pre-collars and four diamond drill holes have been completed totaling 4,338 metres. Assays received for three of four diamond drill holes, which tested targets beyond the limits of the JB Zone, returned weak, anomalous a·nom·a·lous adj. 1. Deviating from the normal or common order, form, or rule. 2. Equivocal, as in classification or nature. gold values. The drilling program will continue into the fourth quarter. The technical data under the heading "Exploration program update" and "Outlook for 2004 - Exploration" has been prepared under the supervision of and verified by Robert S. Chapman, P. Eng., Vice President of Exploration of Centerra, a "qualified person" for the purpose of National Instrument 43-101. Other Corporate Developments Appointment to the Board Effective October 5, 2004, Mr. Ularbek Mateyev was appointed to the Company's board of directors. He is the President of Kyrgyzaltyn JSC, which owns 16% of Centerra's shares. Previously, Mr. Mateyev was Vice Prime-Minister of the Kyrgyz Republic and served as Head of the Department of Social Matters, Press and State Administration; Head of the Department of Local Industry and Trade; Head of the Department of the Mining Industry of the Kyrgyz Government; and Chairman of the State Agency on Energy (Power). He graduated from the Moscow Moscow, city, Russia Moscow (mŏs`kou, –kō), Rus. Moskva, city (1991 est. pop. 8,802,000), capital of Russia and of Moscow region and the administrative center of the Central district, W central European Russia, on the Energy Institute as an electrical/mechanical engineer in 1975. Other Financial Information Related party transactions Cameco Corporation Centerra and its subsidiaries maintain inter-company advances to and from Cameco and several of its subsidiaries to fund operations, costs related to the Kumtor restructuring and the initial public offering of Centerra. These advances, which are non-interest bearing and payable on demand, will be repaid in the ordinary course of business. Effective April 1, 2004, Centerra entered into an administrative services agreement with Cameco whereby Cameco has agreed to provide services and expertise to Centerra in return for reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. for all of its direct and indirect costs Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs. See also
relating to relate prep → bezüglich +gen, mit Bezug auf +acc these services. As a result of the above items, the balance owing to owing to prep. Because of; on account of: I couldn't attend, owing to illness. owing to prep → debido a, por causa de Cameco at September 30, 2004 was $2.7 million with $177,000 of services provided by Cameco during the third quarter. Kyrgyzaltyn and the Government of the Kyrgyz Republic The table below summarizes the management fees, royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. and concession CONCESSION. A grant. This word is frequently used in this sense when applied to grants made by the French and Spanish governments in Louisiana. payments paid by the KGC KGC Knights of the Golden Circle KGC Kids get Care KGC Kingscote, South Australia, Australia (Airport Code) KGC Known Good Cable to Kyrgyzaltyn or the Government of the Kyrgyz Republic and the amounts paid by Kyrgyzaltyn to KGC according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the terms of the gold and silver sale agreement as described on page 43 in the prospectus.
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Quarters Ended
September 30
Related Parties in the Kyrgyz Republic 2004 2003
($ thousands)
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Management fees to Kyrgyzaltyn $223 $212
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Royalty and concession payments to Kyrgyz
Republic(1) 595 760
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Total $818 $972
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Gross gold and silver sales to Kyrgyzaltyn $59,977 $68,346
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Deduct: refinery and financing charges (646) (763)
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Net sales revenue received from Kyrgyzaltyn $59,331 $67,583
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(1) The royalty was eliminated effective January 1, 2004 as part of
the Kumtor restructuring. See pages 98 and 99 of Centerra's
prospectus dated June 22, 2004.
2004 Quarterly consolidated financial results
The financial results for each of the first three quarters of the
year are shown below.
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Key results by quarter Q1 Q2 Q3
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Revenue - $ millions 25.7 46.9 86.7
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Net earnings - $ millions 7.7 4.1 28.7
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Earnings per share - $ 0.20 0.10 0.40
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Cash provided by operations - $ millions 3.3 31.0 29.2
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Non-GAAP measure Total cash cost This MD&A presents information about total cash cost of production of an ounce of gold for the operating properties of Centerra. Except as otherwise noted, total cash cost per ounce is calculated by dividing total cash costs, as determined using the industry standard published by the Gold Institute, by gold ounces produced for the relevant period. The Gold Institute is a non-profit international association of miners, refiners, bullion BULLION. In its usual acceptation, is uncoined gold or silver, in bars, plates, or other masses. 1 East, P. C. 188. 2. In the acts of Congress, the term is also applied to copper properly manufactured for the purpose of being coined into money. suppliers and manufacturers of gold products, which has developed a uniform format for reporting costs on a per ounce basis. Total cash costs, as defined in the Gold Institute standard, include mine operating costs operating costs npl → gastos mpl operacionales such as mining, processing, administration, royalties and production taxes, but exclude amortization, reclamation costs, financing costs and capital, development and exploration. Total cash cost per ounce has been included because certain investors use this information to assess performance and also to determine the ability of Centerra to generate cash flow for use in investing and other activities. The inclusion of total cash cost per ounce enables investors to better understand year-on-year changes in production costs, which in turn affect profitability and cash flow. Outlook for 2004 Since June 30, 2004, Centerra's main operating and exploration ownership interests have included a 100% interest in Kumtor mine, a 95% interest in Boroo mine, and in exploration properties, a 62% interest in REN and a 100% interest in Gatsuurt. Prior to that time, Centerra's predecessor held a one-third interest in Kumtor and a 53% interest in Boroo. For accounting purposes, Centerra's consolidated third quarter results reflect fully consolidated interests in the Kumtor and Boroo mines, a 62% interest in REN and a fully consolidated interest in Gatsuurt. Production In the fourth quarter of 2004, the total ounces of gold poured at the Kumtor and Boroo mines is expected to be about 202,000 ounces, approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 14% lower than in the third quarter due to lower ore grades. For the full year, production is forecast at 900,000 ounces, an increase of 33% over 2003, reflecting the start of commercial production at Boroo on March 1, 2004. As a result of the acquisitions that occurred in late June 2004, Centerra's share of production for the year is expected to be about 607,000 ounces.
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Centerra's share of total production 2004
---------------------------------------------------------------------
Ounces except where noted Q1 Q2 Q3 Forecast Forecast
Q4 Year
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Kumtor production 173,003 178,819 166,805 136,000 655,000
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Centerra's % interest 33% 33% 100% 100% --
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Centerra's share of
Kumtor's production 57,668 59,606 166,805 136,000 420,000
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Boroo production 46,980 63,375 68,774 66,000 245,000
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Centerra's % share 53.4% 53.4% 95% 95% --
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Centerra's share of
Boroo's production 25,087 33,842 65,334 63,000 187,000
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Centerra's share of
total production 82,755 93,448 232,139 199,000 607,000
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Production at Kumtor is expected to decline 3% from 2003 levels to 655,000 ounces in 2004 utilizing a milling plan that calls for a mix of lower grade stockpiled ore and higher grade mine ore. The resulting expected average feed grade in 2004 of 4.4 g/t is lower than the ore grade of 4.5 g/t in 2003. Kumtor's total cash cost is projected to be about $200 per ounce in 2004 compared to $192 per ounce in 2003.
Total cash cost
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$ per ounce Q1 Q2 Q3 Forecast Forecast
Q4 Year
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Kumtor 180 182 192 252 200
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Boroo 135 135 135 150 143
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Consolidated 163 164 178 218 185
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Production at Boroo is expected to be 245,000 ounces of gold in 2004 (including 27,703 ounces produced prior to the start of commercial production on March 1, 2004). Forecast average grade and total cash cost for 2004 are 4.60 g/t and $143 per ounce respectively. Revenue For the year, revenue is forecast to increase in 2004 over 2003 due to increases in total production and the average realized price for gold. In the fourth quarter, revenues are expected to be lower than the immediately preceding quarter. None of Centerra's forecast gold sales are hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. for the remainder of the year. For the fourth quarter, a $10 per ounce change in the gold spot price would change revenue by about $2.0 million, net earnings by about $1.8 million and cash from operations by about $1.9 million. Exploration Centerra is on track to spend its projected $14.5 million on exploration activities in 2004. Activities at Kumtor, Boroo, Gatsuurt and REN for the fourth quarter are planned: Kumtor - Testing will continue for targets beneath the level of the current ultimate pit at Kumtor and along strike extensions to the deposit. - Drilling programs at the Southwest Zone will continue to in-fill between existing holes and will test along strike and down dip dip, in agriculture, method of treating animals (chiefly livestock) infested with skin parasites such as mites, ticks, and warbles. The animal is dipped into or forced to swim through a tank filled with an insecticide solution. of the known mineralized horizons. - A geophysical ge·o·phys·ics n. (used with a sing. verb) The physics of the earth and its environment, including the physics of fields such as meteorology, oceanography, and seismology. interpretation is in progress on induced induced /in·duced/ (in-dldbomacst´) 1. produced artificially. 2. produced by induction. induced, adj artificially caused to occur. induced induction. potential survey results recently collected over the Akbel and Bordoo-Sarytor target areas. - Updated resource and reserve estimates for Kumtor and the Southwest Zone are expected to be completed by the first quarter of 2005. Mongolia - The main exploration activities will be drilling programs at both Boroo and Gatsuurt. Geological ge·ol·o·gy n. pl. ge·ol·o·gies 1. The scientific study of the origin, history, and structure of the earth. 2. The structure of a specific region of the earth's crust. 3. A book on geology. and geochemical results from other target areas are being evaluated and may present other early stage drill targets. - Work will continue on baseline The horizontal line to which the bottoms of lowercase characters (without descenders) are aligned. See typeface. baseline - released version studies and assessing road access to the Gatsuurt area from Boroo. Bio-oxidation test work on transition and fresh sulphide mineralization is in progress and additional flotation flotation or froth flotation Most widely used process for extracting many minerals from their ores. The method separates and concentrates ores by altering their surfaces so that they are either repelled or attracted by water. testwork is planned. An updated reserve estimate for Boroo and a resource estimate for Gatsuurt are expected to be completed by the first quarter of 2005. REN - Deep drilling will continue on the REN project. - Injection water tests are in progress in a deep water monitor well. Corporate tax rate Exposure to corporate income taxes is not expected to be material in 2004 due to the availability of tax loss carryforwards tax loss carryforward See carryforward. to offset taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. in the Kyrgyz Republic and a three-year tax holiday on income earned in Mongolia. Capital expenditures Capital expenditures for Kumtor and Boroo are expected to be $14.7 million in 2004. To the end of the third quarter, $9.3 million has been spent on these programs. For the year, capital expenditures at Kumtor are expected to be $6.5 million with $1.6 million for expansion of the tailings Tailings (also known as tailings pile, tails, leach residue, or slickens[1]) are the materials left over[2] after the process of separating the valuable fraction from the worthless fraction of an ore. dam and the remainder on sustaining capital expenditures. At Boroo, capital expenditures will be about $8.2 million, which includes $3.5 million for construction of an extension to the tailings dam and $2.3 million for a permanent camp for employees. Caution regarding forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Statements contained in this news release which are not historical facts are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results, performance, prospects and opportunities to differ materially from those expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by such forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things: volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the and sensitivity to market prices for gold; replacement of reserves; unexpected geological or hydrological hy·drol·o·gy n. The scientific study of the properties, distribution, and effects of water on the earth's surface, in the soil and underlying rocks, and in the atmosphere. conditions; political risks arising from operating in certain developing countries; imprecision im·pre·cise adj. Not precise. im  pre·cise ly adv. in reserve estimates; success
of future exploration and development initiatives; competition;
operating performance of the facilities; environmental and safety risks
including increased regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. burdens; seismic activity, weather and other natural phenomena; failure to obtain necessary permits and approvals from government authorities; changes in government regulations and policies; including trade laws and policies; ability to maintain and further improve positive labour relations labour relations (US), labor relations npl → relations fpl dans l'entreprise labour relations labour npl → Beziehungen pl ; and other development and operating risks Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. . Although Centerra believes that the assumptions inherent in the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this report. Centerra disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Centerra Gold Inc. Consolidated Financial Statements For the Nine Months Ended September 30, 2004 (Unaudited) ($ US)
Centerra Gold Inc.
Consolidated Balance Sheets
(Unaudited)
(In Thousands of US$)
As at
---------------------------------------------------------------------
Sept 30/04 Dec 31/03
---------------------------------------------------------------------
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Assets
Current assets
Cash $ 130,876 $ 10,101
Accounts receivable 4,591 6,232
Inventories 12,736 1,603
Supplies and prepaid expenses 37,808 11,441
Current portion of long-term receivables,
investments and other - 32,499
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186,011 61,876
Property, plant and equipment 273,291 142,404
Long-term receivables, investments and other 9,596 30,577
Future income tax asset 5,619 926
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288,506 173,907
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Total assets $ 474,517 $ 235,783
---------------------------------------------------------------------
---------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 22,850 $ 13,846
Current portion of long-term debt - 38,351
---------------------------------------------------------------------
22,850 52,197
Long-term debt - 18,140
Provision for reclamation 18,678 7,112
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41,528 77,449
Minority interest 1,619 8,770
Shareholders' equity
Share capital (note 3) 362,152 120,831
Contributed surplus 29,503 29,503
Retained earnings (deficit) 39,715 (770)
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431,370 149,564
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Total liabilities and shareholders' equity $ 474,517 $ 235,783
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Commitments and contingencies (note 4)
See accompanying notes to the consolidated financial statements.
Centerra Gold Inc.
Consolidated Statements of Earnings and Retained Earnings (Deficit)
(Unaudited)
(In Thousands of US$)
Three Months Ended Nine Months Ended
Sept 30/04 Sept 30/03 Sept 30/04 Sept 30/03
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Revenue from
Gold sales $ 86,675 $ 19,719 $ 157,690 $ 49,863
Management fees - 907 1,642 2,629
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$ 86,675 $ 20,626 $ 159,332 $ 52,492
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Expenses
Cost of sales 37,430 11,378 68,222 32,659
Depreciation, depletion
and reclamation 17,998 4,145 33,345 10,452
Exploration 3,753 1,518 7,620 4,550
Interest and other (5,144) 554 (3,503) 987
Administration 3,504 676 4,033 2,351
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57,541 18,271 109,717 50,999
Earnings from operations 29,134 2,355 49,615 1,493
Other expense (note 2d) (317) - 3,830 90
---------------------------------------------------------------------
Earnings before income
taxes and minority
interest 29,451 2,355 45,785 1,403
Income tax expense
(recovery) 147 1 693 (109)
Minority interest 580 (397) 4,607 (743)
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Net earnings 28,724 2,751 40,485 2,255
Retained earnings
(deficit), beginning
of period 10,991 (10,330) (770) (9,834)
---------------------------------------------------------------------
Retained earnings
(deficit), end of
period $ 39,715 $ (7,579) $ 39,715 $ (7,579)
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Basic earnings per
common share (note 5) $ 0.40 $ 0.07 $ 0.81 $ 0.06
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See accompanying notes to the consolidated financial statements.
Centerra Gold Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands of US$)
Three Months Ended Nine Months Ended
Sept 30/04 Sept 30/03 Sept 30/04 Sept 30/03
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Operating activities
Net earnings $28,724 $2,751 $40,485 $2,255
Items not requiring
(providing) cash:
Depreciation, depletion
and reclamation 17,998 4,145 33,345 10,452
Deferred charges
recognized 50 2,796 7,157 5,569
Loss on settlement
of debt (317) - 4,373 -
Other expense - - (541) 90
Minority interest 580 (397) 4,607 (743)
Other operating items (17,797) 6,102 (25,903) 7,668
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Cash provided by
operations 29,238 15,397 63,523 25,291
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Investing activities
Acquisition of net
business assets, net
of cash acquired - - (2,697) -
Additions to property,
plant and equipment (3,599) (16,220) (7,491) (49,169)
Net commissioning
recoveries - - 4,223 -
Redemption of shares,
Cameco Ireland - - 22,900 -
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Cash provided by
(used in) investing (3,599) (16,220) 16,935 (49,169)
---------------------------------------------------------------------
Financing activities
Proceeds of share
issue 20,329 - 84,746 -
Increase in long-term
debt - - - 10,000
Repayment of long-term
debt - - (41,509) -
Advances from (to)
parent company (312) (4,230) (2,920) 6,458
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Cash provided by
(used in) financing 20,017 (4,230) 40,317 16,458
---------------------------------------------------------------------
Increase (decrease) in
cash during the period 45,656 (5,053) 120,775 (7,420)
Cash at beginning of
the period 85,220 17,898 10,101 20,265
---------------------------------------------------------------------
Cash at end of the
period $ 130,876 $ 12,845 $ 130,876 $ 12,845
---------------------------------------------------------------------
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Supplemental cash
flow disclosure
Interest paid $ - $ 108 $ 1,637 $ 393
Income taxes paid $ - $ - $ 71 $ 117
---------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Centerra Gold Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation The consolidated financial statements of Centerra Gold Inc. ("Centerra") have been prepared by management in accordance with Canadian generally accepted accounting principles. The consolidated financial statements have been prepared to reflect the transactions described below with respect to the transfer of assets The conveyance of something of value from one person, place, or situation to another. The law recognizes that persons are generally entitled to transfer their assets to whomever they wish and for whatever reason. The most common means of transfer are wills, trusts, and gifts. from Cameco Gold Inc. ("Cameco Gold", considered the predecessor company of Centerra for purposes of financial reporting), the restructuring agreement between Cameco Gold and Kyrgyzaltyn JSC ("Kyrgyzaltyn"), the acquisition of substantially all of the minority interest in AGR Limited ("AGR"), a subsidiary previously controlled by Cameco Gold through a 56% ownership interest, and the initial public offering of Centerra. Under the terms of the restructuring agreement referred to above, Cameco Gold contributed its one-third interest in Kumtor Gold Company ("KGC"), its subordinated Subordinated A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt. shareholder loan to KGC, a controlling interest controlling interest The ownership of a quantity of outstanding corporate stock sufficient to control the actions of the firm. Controlling interest often involves ownership of significantly less than 51% of a firm's outstanding stock because many owners fail in AGR, whose primary asset is a 95% interest in the Boroo gold project, its shareholder loan to AGR, a 62.14% ownership interest in the REN project in Nevada and $11 million in cash. Kyrgyzaltyn contributed its two-thirds interest in KGC. In accordance with Canadian generally accepted accounting principles relating to transfers of assets between entities under common control, the book values reflected on the Centerra financial statements for the assets contributed from Cameco Gold will be equal to the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of those assets in the Cameco Gold financial statements. In addition, for periods prior to the transactions described below, the financial position, results of operations and cash flows of Centerra reflect the financial position, results of operations and cash flows of Cameco Gold. 2. Restructuring of Centerra (a) Transfer of gold interests from Cameco Gold Pursuant to the restructuring agreement between Cameco Gold and Kyrgyzaltyn, the major assets contributed to Centerra by Cameco Gold included its 1/3 interest in KGC, a 56% interest in AGR, shareholder loans to KGC and AGR, a 73% interest in the Gatsuurt exploration property in Mongolia, a 62.14% interest in the REN exploration project in Nevada and $11 million in cash. Assets and liabilities totaling $27,205,000, included in Cameco Gold's financial statements, were not contributed to Centerra as part of the reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. . The share capital of Centerra has been adjusted to reflect these assets and liabilities, as noted below. In addition to the transfer of assets from Cameco Gold, Cameco Corporation converted $64,180,000 of Centerra's inter-company debt and advances into equity.
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(Thousands of $US)
---------------------------------------------------------------------
Share capital of Cameco Gold, presented on a
continuity of interests basis $ 120,831
Adjustment for net assets retained by Cameco Gold (27,205)
Conversion of inter-company debt and advances to equity 64,180
---------------------------------------------------------------------
$ 157,806
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(b) Acquisition of 2/3 interest in KGC Pursuant to the restructuring agreement between Cameco Gold and Kyrgyzaltyn, Centerra acquired an additional 2/3 interest in KGC, resulting in KGC becoming a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. . The purchase price consisted of $11,000,000 in cash, the contribution of a promissory note promissory note, unconditional written promise to pay a certain sum of money at a definite time to bearer or to a specified person on his order. Promissory notes are generally used as evidence of debt. receivable and common shares of Centerra. The acquisition was accounted for using the purchase method and the results of operations are included, as to 100%, in the consolidated financial statements from June 22, 2004. Previously, Cameco Gold's one-third interest was accounted for by the proportionate pro·por·tion·ate adj. Being in due proportion; proportional. tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates To make proportionate. consolidation method.
The values assigned to the net assets acquired are as follows:
---------------------------------------------------------------------
(Thousands of $US)
---------------------------------------------------------------------
Cash and other working capital $ 32,565
Property, plant and equipment 129,641
Subordinated debt (22,713)
---------------------------------------------------------------------
Net assets acquired $ 139,493
---------------------------------------------------------------------
Financed by:
Cash $ 11,000
Note receivable from Kyrgyzaltan 4,000
Settlement of shareholder subordinated loan 43,993
Common shares 80,500
---------------------------------------------------------------------
$ 139,493
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(c) Acquisition of additional 43.7% in AGR Ltd Effective June 30, 2004, Centerra acquired an additional 43.7% interest in AGR, resulting in Centerra's interest in AGR rising to 99.9%. The purchase price was satisfied through the issuance of Centerra common shares. The acquisition was accounted for as a step purchase and the results of operations are already included as it was already a consolidated subsidiary.
The values assigned to the net assets acquired are as follows:
---------------------------------------------------------------------
(Thousands of $US)
---------------------------------------------------------------------
Reduction of minority interest $ 11,758
Mark to market loss on hedge contracts (5,766)
Property, plant and equipment 23,808
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Net assets acquired $ 29,800
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Financed by:
Common shares $ 29,800
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(d) Exchange of KGC subordinated debt
Effective June 30, 2004, Centerra exchanged common shares and
$13,770,000 in cash in exchange for the subordinated debt of KGC.
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(Thousands of $US)
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Fair value of exchange amount:
Common shares issued $ 20,300
Cash 13,770
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34,070
Net book value of subordinated debt acquired (29,697)
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Loss on exchange of debt $ 4,373
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The loss is included in Other expense on the Income Statement (e) Initial Public Offering Under its initial public offering, Centerra issued 5,000,000 common shares to the public on June 30, 2004 for net proceeds of $53,417,000 after deducting the underwriter's fees of 5%. On July 28, 2004, the underwriters to the initial public offering of Centerra exercised their over-allotment option to acquire an additional 1,875,000 shares for net proceeds of $20,329,000. 3. Share Capital Centerra is authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: to issue an unlimited number of common shares with no par value.
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Number Issued 2004
(Number of Shares)
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Beginning of period 100
Issued:
Cameco Gold (note 2(a)) 38,148,971
Kyrgyzaltyn (note 2(b)) 18,789,717
AGR minority shareholders (note 2(c)) 5,204,605
IFC / EBRD agency lenders to KGC (note 2(d)) 3,061,212
Initial public offering (note 2(e)) 6,875,000
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End of period 72,079,605
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Amount 2004
(Thousands of $US)
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Beginning of period $ -
Share capital on restructuring:
Cameco Gold share capital 120,831
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Centerra share capital before restructuring 120,831
Adjustment to Cameco Gold (note 2(a)) 36,975
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Common shares issued to Cameco Gold 157,806
Kyrgyzaltan (note 2(b)) 80,500
AGR minority shareholders (note 2(c)) 29,800
IFC / EBRD agency lenders to KGC (note 2(d)) 20,300
Initial public offering for cash (note 2(e)) 73,746
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End of period $362,152
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The adjustment to share capital related to Cameco Gold reflects the increase from Cameco Gold's historical share capital value to the carrying value of the assets and liabilities transferred from Cameco Gold to Centerra as part of the restructuring agreement. As at September 30, 2004 a total of 104,167 stock options were outstanding, with a strike price of Cdn $15.50 per share, and 56,250 performance share units and 13,014 deferred share units were outstanding. 4. Commitments and Contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. An action against Cameco Corporation, Cameco Gold, Kumtor Operating Company operating company A business that engages in transactions with outsiders. ("KOC KOC Knights of Columbus KOC Kings of Chaos (gaming) KOC Kuwait Oil Company KoC Knights of Cydonia (Muse song) KOC Kiss on the Cheek KOC Kuwait Olympic Committee KOC Kids of Cracatau ") and certain other parties commenced in a Canadian court by certain dependents of nine persons seeking damages, in the amount of Cdn $20,700,000 (USD USD In currencies, this is the abbreviation for the U.S. Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. $16,300,000) plus interest and costs including punitive damages Monetary compensation awarded to an injured party that goes beyond that which is necessary to compensate the individual for losses and that is intended to punish the wrongdoer. in connection with the death of the said nine persons in a helicopter helicopter, type of aircraft in which lift is obtained by means of one or more power-driven horizontal propellers called rotors. When the rotor of a helicopter turns it produces reaction torque which tends to make the craft spin also. accident in Kyrgyzstan Kyrgyzstan (kĭrgēstän`), officially Kyrgyz Republic, republic (2005 est. pop. 5,146,000), c.76,600 sq mi (198,400 sq km), central Asia. on October 4, 1995 is continuing. This action is being defended by the insurers of Cameco Corporation. Management is of the opinion, after review of the facts with counsel, that the outcome of this action will not have a material financial impact on Centerra's financial position. 5. Earnings Per Share Amounts The weighted average of shares outstanding is comprised of the shares issued to Cameco Gold under the restructuring, reflected on a continuity of interests basis, plus the incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. effect of the shares issued under the transactions described in note 2,and as set out below.
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Three Months Ended Nine Months Ended
Sept 30/04 Sept 30/03 Sept 30/04 Sept
30/03
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Weighted average common
shares outstanding 71,509 38,149 50,072 38,149
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Basic earnings per
common share $0.40 $0.07 $0.81 $0.06
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6. Related Party Transactions Cameco Corporation Centerra and its subsidiaries maintain inter-company advances to and from Cameco and several of its subsidiaries to fund operations. These advances, which are non-interest bearing and payable on demand, will be repaid in the ordinary course of business. Effective April 1, 2004 Centerra entered into an administrative services agreement with Cameco whereby Cameco has agreed to provide services and expertise to Centerra in return for reimbursement for all its direct and indirect costs relating to those services. As a result of the above items, the balance owing to Cameco at September 30, 2004 was $2.7 million and $177,000 of services were provided by Cameco under the services agreement during the third quarter. Kyrgyzaltyn and the Government of the Kyrgyz Republic The table below summarizes the management fees, royalties and concession payments paid by KGC to Kyrgyzaltyn or the Government of the Kyrgyz Republic and the amounts paid by Kyrgyzaltyn to KGC according to the terms of the gold and silver sales agreement as described on page 43 in the prospectus.
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Three months Nine months
Related parties in the Kyrgyz Republic ended ended
Sept 30, 2004 Sept 30, 2004
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Management fees to Kyrgyzaltyn $223 $744
Royalty and concession payment
payments to Republic 595 1,985
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$818 $2,729
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Gross gold and silver sales to Kyrgyzaltyn $59,977 $198,808
Deduct: refinery and financing charges (646) (2,037)
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Net sales revenue received from Kyrgyzaltyn $59,331 $196,771
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7. Segmented Information Centerra has three reportable segments. The Kyrgyzstan segment involves the operations of the Kumtor Gold Project and local exploration activities, and the Mongolian Mon·go·li·an or mon·go·li·an adj. Relating to Down syndrome. No longer in technical use. Now considered offensive. segment involves the operations of the Boroo Gold Project and local exploration activities. The North American segment involves the head office located in Toronto, loans to each of the mine operations, as well as exploration activities on North American projects.
Three months ended September 30, 2004
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(millions) Kyrgyz North Total
Republic Mongolia America
---------------------------------------------------------------------
Revenue $ 58.5 $ 28.2 $ - $ 86.7
Expenses
Products and services sold 28.4 9.0 - 37.4
Depreciation, depletion and
reclamation 11.1 6.9 - 18.0
Exploration 1.8 1.3 0.7 3.8
Interest and other 2.7 1.0 (9.2) (5.4)
Administration 0.5 1.0 2.0 3.5
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Earnings before income taxes and
minority interest 13.9 9.0 6.5 29.4
Income tax expense 0.1 - - 0.1
Minority interest - 0.6 - 0.6
---------------------------------------------------------------------
Net earnings $ 13.8 $ 8.4 $ 6.5 $ 28.7
---------------------------------------------------------------------
---------------------------------------------------------------------
Assets $ 271.7 $ 140.3 $ 62.5 $ 474.5
Capital expenditures for the
quarter $ 1.0 $ 2.7 $ - $ 3.7
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Three months ended September 30, 2003
---------------------------------------------------------------------
(millions) Kyrgyz North Total
Republic Mongolia America
---------------------------------------------------------------------
Revenue $ 20.6 $ - $ - $ 20.6
Expenses
Products and services sold 11.4 - - 11.4
Depreciation, depletion and
reclamation 4.2 - - 4.2
Exploration 0.2 0.5 0.8 1.5
Interest and other 1.5 0.6 (1.6) 0.5
Administration - 0.2 0.4 0.6
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Earnings before income taxes and
minority interest 3.3 (1.3) 0.4 2.4
Income tax expense (recovery) - - - -
Minority interest - (0.4) - (0.4)
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Net earnings (loss) $ 3.3 $ (0.9) $ 0.4 $ 2.8
---------------------------------------------------------------------
---------------------------------------------------------------------
Assets $ 108.0 $ 84.9 $ 73.4 $ 266.3
Capital expenditures for the
quarter $ 3.4 $ 12.8 $ - $ 16.2
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Nine months ended September 30, 2004
---------------------------------------------------------------------
(millions) Kyrgyz North Total
Republic Mongolia America
---------------------------------------------------------------------
Revenue $ 101.9 $ 57.4 $ - $ 159.3
Expenses
Products and services sold 49.0 19.2 - 68.2
Depreciation, depletion and
reclamation 18.1 15.2 - 33.3
Exploration 2.4 1.9 3.3 7.6
Interest and other 5.9 3.4 (8.9) 0.4
Administration 0.5 1.1 2.4 4.0
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Earnings before income taxes and
minority interest 26.0 16.6 3.2 45.8
Income tax expense 0.7 - - 0.7
Minority interest - 4.6 - 4.6
---------------------------------------------------------------------
Net earnings $ 25.3 $ 12.0 $ 3.2 $ 40.5
---------------------------------------------------------------------
---------------------------------------------------------------------
Assets $ 271.7 $ 140.3 $ 62.5 $ 474.5
Capital expenditures for the
year to date $ 2.0 $ 5.5 $ - $ 7.5
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Nine months ended September 30, 2003
---------------------------------------------------------------------
(millions) Kyrgyz North Total
Republic Mongolia America
---------------------------------------------------------------------
Revenue $ 52.5 $ - $ - $ 52.5
Expenses
Cost of sales 32.7 - - 32.7
Depreciation, depletion and
reclamation 10.5 - - 10.5
Exploration 0.5 1.1 2.9 4.5
Interest and other 4.0 1.5 (4.4) 1.0
Administration - 0.5 1.8 2.3
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Earnings before income taxes and
minority interest 4.8 (3.1) (0.3) 1.5
Income tax expense (recovery) - - (0.1) (0.1)
Minority interest - (0.7) - (0.7)
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Net earnings (loss) $ 4.8 $ (2.4) $ (0.2) $ 2.3
---------------------------------------------------------------------
---------------------------------------------------------------------
Assets $ 108.0 $ 84.9 $ 73.4 $ 266.3
Capital expenditures for the
year to date $ 10.5 $ 38.4 $ 0.3 $ 49.2
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